India - Cement Industry Restructuring Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No.: 17643 IMPLEMENTATION COMPLETION REPORT INDIA CEMENT INDUSTRY RESTRUCTURING PROJECT (Loan 3196-IN) April 7, 1998 Finance and Private Sector Development Division South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - India Rupees Rs. Per US$1.00 US$ PerRs. 1.00 1990 17.0 0.059 1997 35.2 0.028 WEIGHT AND MEASURES 1 metric ton (ton) 1,000 kilogras (kg) = 2,204 pounds 1 milligram (mg) = 0.001 gram (gm) 0.015 grain 1 liter (1) = 61.02 cubic lines = 1.057 quarts 1 kilometer (km) 1,000 meters = 0.621 mile I meter = 1.0936 yards 39.37 1 cubic meter (m 3) 35.31 cubic feet 264 US gallon 1 square meter (m2) 1.196 square yards = 10.76 square feet 1 hectare (ha) 10,000 square meters = 11,960 square feet 1 MVA = 1,000 KVA 1 MW ,000 KW 1 KCAL = 1,000 CAL = 0.2519 BTUs ABBREVIATIONS AND ACRONYMS ACC - Associated Cement Companies BCC - Bulk Cement Corporation India (Ltd.) Birla - Birla Jute and Industries Ltd. CMA - Cement Manufacturers' Association DANIDA - Danish Intemational Development Agency DCCI - Development Commission for Cement Industry in India DEA - Department of Economic Affairs, Ministry of Finance EIA - Environmental Impact Assessment GDP - Gross Domestic Product GNP - Gross National Product GOI - Government of India ICB - International Competitive Bidding ICIBI - Industrial Credit and Investment Corporation of India IDBI - Industrial Development Bank of India MOI - Ministry of Industry MP - Madhya Pradesh NPC - National Productivity Council OPC - Ordinary Portland Cement PPC - Pozzolana Portland Cement PSC - Portland Slag Cement RBI - Reserve Bank of India RTC - Regional Training Center TISCO - Tata Iron and Steel Company TPD - Tonnes per Day TPY - Tonnes per Year FISCAL YEAR OF THE BORROWER April I to March 31 Vice Presidentt Ms. Mieko Nishimizu Country Director for India: Mr .Edwin R. Lim Sector Manager: Ms. Marilou Uy Task Manager/Title: Uruj Kirmnani, Sr. Implementation Specialist  FOR OFFICIAL USE ONLY Implementation Completion Report Cement Industry Restructuring Project (Loan 3196-ISNj Table of Contents Page No. PREFACE EVALUATION SUMMARY.................................................................................... i-v PART I: PROJECT IMPLEMENTATION ASSESSMENT .........................................I A. Background ........................................................2 B. Statement/Evaluation ........................................................2 C. Achievement of Objectives ................... ....................................2 D. Implementation Record and Major Factors Affecting the Project ................. 5 E. Project Sustainability ........................................................6 F. Bank's Performance ........................................................6 G. Borrower's Performance ........................................................6 H. Assessment of Outcome ........................................................7 I. Future Operations .7 J. Key Lessons Learned .7 PART II: STATISTICAL TABLES ..8 Table 1 - Summary of Assessment .8 Table 2 - Related Bank Loans ................................ . 10 Table 3 - Project Timetable .10 Table 4 - Loan Disbursements .11 Table 5 - Key Indicators for Project Implementation .11 Tables 6(a&b) - Key Indicators for Project Operation ....................................... 12 Table 7 - Studies included in the Project .13 Table 8 (a) - Project Costs . 13 Table 8 (b) - Project Financing ................14 Table 9 - Economic & Financial Rates of Return .14 Table 10 - Status of Legal Covenants .15 Table 11 - Compliance with Operational Manual Statements .15 Table 12 - Bank Resources: Staff Inputs .16 Table 13 - Bank Resources: Missions .16 APPENDICES .................................................... 17 A, Mission's Aide-Memoire (June-July 1997 mission) ................................................. 17-20 B. Borrower's Contribution to ICR .................................................... 21-27 C. Industry Modernization and Restructuring Component-Description, Implementation, Operation and Rates of Return of Sub-projects ....................... 28-39 D. Pilot Bulk Cement Transportation Component .................................................... 40-43 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization._-  IMPLEMENTATION COMPLETION REPORT INDIA CEMENT INDUSTRY RESTRUCTURING PROJECT (Loan 3196-IN) Preface I. This is the Implementation Completion Report for the Cement Industry Restructuring Project in India, for which Loan 3196-IN in the amount of US$300 million equivalent was approved on May 15,1990 and made effective on October 3, 1990. 2. The loan was closed on June 30 1997, compared to the original closing date of June 30 1996. Final disbursement took place on December 1, 1997, at which time a balance of US$ 9.3 million was canceled besides earlier cancellations of US$6.82 million on June 1, 1994 and of US$ 10 million on May 3, 1997 respectively. A distinctive feature of the loan was the nomination of the financial intermedaries, IDBI and ICICI, two leading financial institutions in India, to select and appraise the subprojects under criteria prescribed by the Bank. GOI onlent the loan proceeds, except for US$2 million, to these institutions as rupee loans on commercial terms. They, in turn, relent to participating cement companies the needed amounts in course of time, to partly finance five large subprojects and three smaller subprojects on their usual commercial terms. 3. The ICR was prepared by a completion mission 1 that visited India in June-July 1997. The aide-Memoire of the mission is reproduced as Appendix A. Materials in the project files and the data and information on the subprojects that the beneficiaries furnished to the mission were made use of in preparing the ICR. Special mention is also made of the statistical publications and reviews that the Cement Manufacturers' Association of India made available to the mission 4. The ICR was reviewed by Marilou Uy (Sector Manager), Private Sector Development and Finance Group. The borrowers provided their own evaluation of the project's execution and furnished other comments and these are included as Appendix B to the ICR. 1 Uruj Kirmani, Task Manager and P. Venugopal (Financial Consultant) comprised the mission.  CEMENT INDUSTRY RESTRUCTURING PROJECT (Loan 3196-IN) INDIA Evaluation Summary 1. Introduction. The Cement Industry in India had been under heavy control by the Government of India (GOI) until 1982. These controls applied to capacities, prices, allocation of sales quotas, nominations of buyers and many other elements. Under the circumstances, the growth of the industry was severely constrained. The Bank had begun to work in the Indian cement sector in 1980 with a sub-sector study (India-Cement Sector Report, No. 3141-IN). This study contributed to the policy debate for partial decontrol of the industry in February 1982. The Bank gave its support to the liberalization policies of GOI by providing two loans for the Cement Industry Project (Lns. 2660/2661-IN) in March 1986. These loans became effective on November 10, 1986 and closed on June 30, 1994. In March 1989, the Government removed the price and distribution controls on cement completely. The Sustainability of liberalization and further improvement of economic efficiency depended on the industry's ability to adjust, through industrial restructuring, to the new and more competitive environment. This loan (Ln.3196-IN), was provided to support GOI's policy decision of complete elimination of cement price and distribution controls and assist the industry in adjusting to an increasing competitive environment. This loan (In.3196-IN), was approved in May 1990 and became effective from October 3, 1990. GOI onlent most of the proceeds of the loan (US$ 298 million out of total loan US$ 300 million) to the financial intermediaries, i.e. the Industrial Development Bank of India (IDBI) and the Industrial Credit and Investment Corporation of India (ICICI) through a line of credit, to provide sub-loans to cement companies in the private sector implementing the various sub-projects for industrial modernization and restructuring. The remaining US$ 2 million were managed directly by GOI to support Human Resources Development Component, TA and Studies. 2. Project Objectives. All the objectives were well conceived and aimed at enabling the industry itself of the opportunities available under a free market environment. The project was designed to support the government's policy decision of complete elimination of cement price and distribution controls already effected, and assist the industry in adjusting to an increasingly competitive free market environment. It would enhance the industry's economic efficiency and pave the way for sustained growth to meet increasing demand in the 1990s. Specifically, the project was to: * help to modernize and restructure a number of cement companies so that cost efficiencies were achieved, capacities added, energy savings effected, environment improved by reduction in emission of pollutants within limits, and alleviate cement supply deficiencies in the northern and eastern regions in the country; * introduce a bulk cement transportation scheme by financing a Bulk Cement Transport Pilot Project to transport Bulk cement from Wadi (Andhra Pradesh) to Mumbai, which would encourage use of bulk cement and ready mix concrete in construction industry; * establish demand driven training system at Regional Training Centers (RTCs) and develop training programs compatible with the modernization of the industry; and  * assist GOI in formulating their future strategy by providing six studies, focused on pollution control, bulk cement marketing, coal washeries, use of lignite as fuel in the industry and export of cement. 3. Implementation Experience and Results. Achievement of objectives: The core objective of fast and efficient growth through total deregulation of the cement industry has been fully realized. Cement production from large cement plants which was 18 million tons in 1980 rose to 70 million tons in 1996-97. About 3 million tons were also exported in 1996-97. The market determines the prices. Momentum has been generated for some of these companies and others to expand capacities on their own. 4. On the specific project components, the achievements were as follows: (a) Modernization and Restructuring: Five cement companies expanded their capacities by adding new plants with state of the art technology, and served the deficient northern and eastern regions of the country. They contributed 5.7 million tons out of the total increase of 8.5 million tons in annual consumption that had occurred in the six years ending 1996-97. Two other cement plants also benefited under the loan in rehabilitating obsolescent machinery. All the plants achieved energy efficiencies in conserving coal and electric power and the emission of particulates were brought down even below the limits prescribed under India and Bank's Environment control limits. (b) The Pilot Bulk Cement Transportation Component: The pilot plant was successfully completed. The first dedicated train with Bulk Cement Wagons transported cement from Wadi Plant to Mumbai terminal (a distance of about 300 miles) in October 1997. (c) Human Resource Development Component: Four Regional training Centers (RTCs) were established and until June 30, 1997 over 3000 personnel were trained in these RTCs. The training scheme was of great value to the industry and is being continued on a self- financing basis. (d) Technical Assistance and Studies: Six studies were completed. with the assistance of mostly local consultants. Recommendations pertained to the improvement of productivity in mini-cement plants, washing coal to reduce ash content, using lignite in place of coal in cement plants with access to lignite, exporting cement, introducing bulk cement transport to Calcutta and Delhi and promoting use of bulk cement. The recommendations made in these studies would greatly benefit GOI in formulating their future policies and the industry in applying their results economically. 5. Project Sustainability. India's per capita consumption of cement (of less than 100kg per capita) is very low. The cement companies, especially those that are organized and managed well, as the seven beneficiary companies, would have no difficulties in producing to full capacity and marketing the product. The Bulk Cement transport pilot project will encourage use of bulk cement and ready mix concrete, expand use of ready mix concrete in cement industry, and improve the overall efficiency in transportation of cement. In view of the above, the project sustainability is most likely.  - 111 - 6. Project Costs, Financing and Timetable. Cost overruns were within 5% of detailed appraisal estimates. The Bank financed through IDBI/ICICI about 40% of the total project costs of US$ 698 million. The balance was met by domestic financing. A Danish Government grant (DANIDA) of about US$ 6.5 million for the training scheme was utilized. It was supplemented with the proceeds from the previous Cement Industry Project (Lns. 2660 and 2661) and this loan (Ln.3 1 96-iN) for establishing four Regional Training Centers and impart focused training based on well designed courses. In regard to project completion, all the major sub-projects were completed in time. The implementation delays occurred in Bulk Cement Transport Pilot Component. It was caused first, by delay in restructuring the Bulk Cement Corporation (BCC), with the withdrawal of 3 out of 4 private sector stakeholders in BCC (para 7). These institutional changes and downsizing of the project caused delay in the start of the construction which commenced in October 1994. Later delays occurred partially due to force majeure (sev-ere damage to wagons factory due to floods) and inefficient management of the supplies of bulk cement wagons. 7. Major Factors Affecting the Project. Major factors affecting the overall delay in implementation of some project components are discussed as under: (a) TISCO sub-project encountered operational problems with the newly designed rollers recommended by consultants for slag grinding. After making trial runs for several months TISCO staff changed the design and manufactured new rollers locally. The purchase of the new designed rollers in the first instance without a proven track record, proved to be expensive in the long run. (b) Infrastructure deficiencies, such as unreliability of power supply, poor access roads, shortages of rail wagons were vexatious, but the cement companies improvised various solutions at high costs. For example, during project implementation, standby power plants were installed at Maihar, Gujarat Ambuja and JK Corp. Ltd. sites to overcome power shortages. (c) Bulk Cement Transport Pilot Project: Implementation of this component was delayed due to the following reasons: (i) Institutional: originally Bulk Cement Corporation (BCC) was formed with 5 stakeholders. Four private sector companies and GOI, each had 20% equity. The new institution suffered set back when 3 out of 4 private sector participants withdrew from BCC necessitating its restructuring; (ii) Technical: The project was downsized and redesigned to the revised program of sole private sector stakeholder ACC causing delay in project implementation of this project; and (iii) Procurement: M/S CIMMCO, the supplier of Bulk cement wagons, delayed delivery of Bulk Cement Wagons, resulting in delay in project completion by one year. 8. Although, all major sub-projects i.e. ACC Gagal, TISCO, Maihar, and LAXMI cement were completed within the original closing date, BCC component necessitated extension of closing date by one year. 9. Bank and Borrower Performance. The Bank's performance, in first encouraging the government to deregulate the industry, and then supporting the cement companies to adapt to a free market economy was well conceived. In delegating to IDBI/ICICI - detailed appraisals, and relending, the Bank provided transfer of technology and developed expertise within these institutions for independent support to the industry in the future. The Bank involved IDBI/ICICI in supervision missions, who focused at problem resolving on the spot as well as at the higher  - iv- levels of the Government, where necessary. The Borrowers and the executing agencies, for their part, different tiers of the ministries, the intermediary financial institutions and the cement companies performed with a total commitment to results and success. 10. Rating Project Outcome. The project is rated 'satisfactory'. The cement industry in India has had a phenomenal growth with Bank support, and regional distribution has improved. All project components were successfully implemented. This included the bulk cement transportation component although delayed in completion. 11. Summary of Findings, Future Operations, and Key Lessons Learned. The planned capacity, as enhanced by the companies in some cases after appraisal, would be reached in 2 years (84% already reached in 1996-97). The Bulk Cement Transport Pilot Project may need to go through a 'Learning Curve'. Nevertheless, India will not lag behind developed countries in adopting this mode of transportation. The cement sub-projects have attained or improved upon the rated energy efficiencies and environmental standards. The momentum for growth of the industry having been created and the industry having come of age in a competitive setting, the Bank is unlikely to lend for a cement project again. But there is scope in an infrastructure lending, for a segment targeted to the cement industry, such as for concrete highways. 12. The lessons learnt were as follows: l A free market is a requisite for the rapid growth of an industry. In a developing country, however, the government has to actively support the transition from a command economy to a free economy. * To be competitive and efficient and to have staying power, the industry must possess and continuously upgrade its technical and management skills and knowledge. - Any technology that is introduced in a developing country should have proven track record. Initial price attractions of unproved technology could be ultimately detrimental. - In planning projects, a holistic approach that should include what external agencies should provide is necessary. Power, transportation, access roads and other items, in regard to their availability and dependability have to be assessed and built in at the start. * In the present context of high interest rates on loans in India (far in excess of the inflation rates), attention should be paid to the capital structure so that the debt to equity ratios are carefully determnined at start of a project. The project costs could become high due to interest during construction and delays in commissioning could have a deleterious effect on the finances of a project.  IMPLEMENTATION COMPLETION REPORT INDIA CEMENT INDUSTRY RESTRUCTURING PROJECT (LOAN 3196-IN) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Background 1. Over four to five decades until the beginning of 1982, the Cement Industry in India had been under heavy control by the Government (GOI). The plant capacities and expansions were subject to strict licensing, price controls were applied, quotas for sale through the government were enforced, and measures for freight equalization over the country were adopted. The effect of these regulations was, that growth of the industry was severely hampered. The Bank had begun to work in the Indian Cement Sector in 1980 with a Sub-Sector Study. This study contributed to the policy debate for partial decontrol of the industry in February 1982. To support the phased implementation of the elimination of the cement pricing and distribution control, the Bank provided loans for the Cement Industry Project (Lns. 2660/2661-fN) of US$ 200 million in November 1986. These loans became effective on November 10, 1986 and closed on June 30, 1994. 2. In March 1989, the Government removed all price and distribution controls on cement completely, thereby eliminating all subsidies to the cement users in the public sector and all cross- subsides to the cement users in the public sector, as well as all cross-subsidies relating to freight equalization and differences in levy quotas among cement manufactures. The sustainability of liberalization policies and further improvement of economic efficiency depended on the industry's ability to adjust, through industrial restructuring, to the new and more competitive free market environment. Restructuring would focus on some key elements, namely: (a) Regional production capacity redistribution: Following the elimination of the freight equalization scheme, sharp regional price differences developed between the cement-deficit north and east regions and cement-surplus south and west regions. There was need for additional cement capacity in the northem and eastern regions, which included some of the poorest areas of the country; (b) Modemization and Restructuring of existing cement companies: The need for modemization came from strong competitive pressures and the Govemment's commitment in enforcing pollution-control standards; (c) Introduction of bulk cement transport systems; and (d) Establishing a manpower training system that was responsive to the needs of substantial modemization and expansion in the cement industry. 3. The Bank supported the Govemment in restructuring the sub-sector through this (Ln. 3196- IN), which was approved in May 1990, and became effective on October 3, 1990. Out of US$ 300 million loan, US$ 298 million was provided to the industry through the development financial intermediaries, the Industrial Development Bank of India (IDBI) and the Industrial Credit and Investment Corporation of India (ICICI) (50% each). Remaining US$ 2MM were managed by GOI in financing Technical Assistance, Studies and Human Resources Development Component. The Bank had initially identified a few sub-projects and had partially appraised them. Later IDBI and ICICI selected and appraised other sub-projects. The Bank reviewed the appraisal by IDBI/ICICI and environmental assessment report of each sub-project before agreeing to its financing through IDBI/ICICI.  -2 - B. Statement /Evaluation of Objectives 4. Succinctly stated, the project, in a resounding endorsement of the government's policy decision of complete elimination of cement price and distribution controls already effected, would assist the industry in adjusting to an increasingly competitive free market environment. The project would enhance the industry's economic efficiency and pave the way for sustained growth to meet increasing demand in the 1990s. Although not explicitly mentioned, the challenge was to demonstrate that a market economy would produce wholesome results where a command economy had not succeeded. The cement industry was the first one that GOI had chosen, to deregulate and the lessons to be learnt were thus important. The Bank's support to the government in implementing the policv of liberalization, and lending assistance to the cement companies to adjust to the free market conditions in the short and the long term was appropriate. 5. The assistance provided under various elements discussed below was comprehensive and well chosen. Part A: Industry Modernization and Restructuring: Modernization and restructuring with a view to capacity expansion, reduction of cement deficit in some regions, cost efficiencies, improving pollution control and promoting market competition; Part B: Bulk Cement Transport Pilot Project Introduction of a pilot scheme for bulk transportation of cement which would help establish a pilot bulk cement transport system including loading facility at Wadi and unloading facility at Kalamboli (Mumbai). It will demonstrate the potentials for productivity increases in large construction technology and encourage use of ready-mix concrete (RMC), and provide efficient transportation of cement using Bulk Cement Wagons. Part C: Human Resources Development Component: Support establishment of a demand- driven training system and programs to develop skills, compatible with the significant transformation of the cement industry, in 4 Regional Training Centers. Part D: Technical Assistance and Studies: It included studies relating to policy and options in six topics (i) Feasibility study for Coal Washeries; (ii) Use of lignite as fuel in cement industry; (iii) Bulk cement transportation and the marketing of bulk cement; (iv) Study of Mini cement plants; (v) Study of cement export opportunities; and (vi) Marketing of Bulk Cement. C. Achievement of Objectives Core Objectives 6. The core objective of fast and efficient growth of the cement industry has been fully realized. Cement production from large cement plants which was 18 million tons in 1980 rose to 70 million tons in 1996-97. About 3 million tons were also exported in 1996-97. Indian cement plants that have been converted to the dry process and modernized with the state of the art technology. The market determines the prices and these have been competitive, fair to the companies and considered reasonable by the consumers. Momentum has also been generated for some of these companies, and others to expand capacities on their own. The macroeconomic policy reforms in the cement industry have set a model for deregulation of the other industries. 7. Modernization and Restructuring. Five cement companies benefited under this project in that they expanded their capacities by adding new plants with state-of-the-art technology, and served the deficient northern and eastern regions of the country. Of the increase of 8.5 million tons in  - -~~~3 - consumption in the two regions as between 1990-91, the year of loan effectiveness and 1996-97, the year of the original loan closing, these five plants contributed 5.7 million tons. Two other cement plants also benefited under the loan in rehabilitating of obsolescent machinery. All the seven plants achieved energy efficiencies of a high order in conserving coal and electric power, and made significant reduction in cement production costs. Above all, particulate emissions was brought down below the normal government approved limits through special designing of equipment and accessories. This component absorbed 97% of the total project costs and 95% of the loan proceeds. Full details of the individual sub-projects are given in Table 8a and the details are given in Appendix C. 8. Pilot Bulk Cement Transportation The Pilot Bulk Cement Transportation Component, in relation to the modernization and restructuring component, was of a small magnitude, absorbing about 3% of the total project costs and 4% of the loan proceeds. The project has been commissioned fully in October 1997. Bulk cement was transported from Wadi to Kalamboli (about 300 miles) terminal using Bulk Cement Wagons. While implementation problems occurred, these have been resolved. No risk is foreseen to proving that bulk transportation of cement in specially built rail wagons to a metropolis like Mumbai, and use of cement in bulk would promote cost effectiveness, speed and quality of construction and reduction in loss of cement. In fact central batching plants, that at present have to receive cement in bags only, have started using bulk cement. Ready Mix Concrete (RMC) plants are gaining popularity in India. To date 12 such plants have been established, including one plant adjacent to the bulk cement terminal at Kalamboli (near Mumbai). BCC has, in fact sold over 2000 tons of Bulk Cement in its two months of operations. This is very encouraging as Bulk Cement is becoming popular with the consumers much faster than anticipated. Additional details on the pilot bulk transportation component are contained in Appendix D. 9. Training system. Four Regional Training Centers (RTCs) were established for providing pre- entry, entry and refresher courses, as well as special courses tailored to the needs of individual plants from time to time. Financing to an extent of US$ 10 million was provided from this loan and the earlier loans (Lns. 2660/2661-IN), including a grant (about US$ 6.5 million) from DANIDA of Denmark 49 training packages (with 27 from overseas) were developed. By mid 1997, the RTCs trained over 3000 personnel in 247 courses. The training scheme has proved of great value to the industry and is being continued on a self-financing basis. 10. Studies. The six studies were taken up and completed with the assistance of mostly local consultants. Brief results of the studies are given as under: (i) Mini cement plant study: The reasons for sickness were identified. Financial institutions are being persuaded by the government to provide capital for reviving sick units, where justified. (ii) Study on Coal washeries: Five central coal washeries (for reducing ash content of coal) at identified locations of the coal belt are likely to be established. It will significantly improve pollution control and energy efficiencies. (iii) Study,for the use of Lignite as,fuel: Use of lignite in place of coal, in lignite abundant areas, has been found feasible. (iv) Study, for the Export of cement: Bottlenecks in export have been identified and are being removed. (v) Study, for the Bulk cement transportation in major cities of India: Locations for terminals in Calcutta and Delhi, were identified. The Mumbai experience is being watched. The experience  -4 - gained through Bulk Cement Transport Pilot at Mumbai will be helpful in designing of similar facilities elsewhere. (vi) Study for the development of market for bulk cement: The recomrnendations of this study were publicized through the media including documentary films to promote use of bulk cement. 11. The results achieved and recommendations made in these six studies would assist GOI in their policy making for future growth of the cement sector, as well as benefit the lindustry at large for application of the recommendations made therein. Project Cost and Financial Objectives 12. Project Costs: The sub-projects under all the components were estimated to cost US$ 669 million, after detailed appraisals, and involve ICB procedure purchases to a value of US$ 301 million. The actual project costs are now placed at US$ 698 million of which US$ 292 million were utilized for the ICB contracts. The closeness between the appraisal estimates and the actual costs and financing are given in Tables 8a and 8b respectively. 13. Financial / Economic Rate of Return: All large sub-projects were required to satisfy the eligibility criteria (for sub-loans) of a minimum economic rate of return of 12% and a minimum financial rate of return of 15%; all the participating companies should also have a debt/equity ratio lower than 2.5/1. The composite ERR for the five large sub-projects, of the five cement companies that expanded capacity, is now estimated at 21%; the composite FRR, at 16%. These are highly satisfactory. Table 9 in Part II contains the estimates for the individual sub-projects. Fuller details are included in Appendix C. The ERR for the pilot bulk cement transportation sub-project, although not a major one, has also been estimated and the details are contained in Appendix D. It is estimated at 10.6% and is satisfactory. 14. Social Objectives: The project had not explicitly addressed poverty alleviation and gender concerns at the time it was prepared. Nevertheless, since cement plants are usually located at remote areas, near sources of raw material like limestone, there is a boost to the local economy. The owners of the cement plants have provided housing, health and educational facilities and given attention to women's interests by establishing community centers for the development of skills, especially for women living in the areas near the plant locations. 15. Environment: The Project Agreement had laid down as a criterion that the sub-projects should be designed and all equipment required thereunder be specified to meet the stricter of the environmental protection standards applicable in India or acceptable to the Bank. Environmental assessment was to be completed to Bank's satisfaction. Table 6 and Appendix C show that these requirements have been satisfied. There is constant monitoring of the emissions and of ambient air quality. The cement companies have also laid out extensive green belts and are otherwise sensitive to environmental improvements. D. Implementation Record and Major Factors Affecting the Project 16. Implementation record: The overall record of implementation is satisfactory. All major cement plants under the modernization and restructuring component were completed before the original loan closing date of June 30, 1996. In fact, all the five major sub-projects for addition to capacity/modernization went into commercial production in less than four years after IDBI/ICICI approvals/loan effectiveness. Gujarat Ambuja and JK Corp took a few more months, but they increased the planned capacity which involved some redesigning. The extension of the loan closing  -5 - date by one year to June 30, 1997 was necessitated to accommodate a late start of the bulk cement transportation sub-project and the delay in the delivery of the special wagons manufactured for bulk cement. The major reason for the late start was institutional. 3 out of 4 cement companies who were primary stakeholders pulled out from the new venture Bulk Cement Corporation (IBCC). They became apprehensive of market inertia and resistance to switch from use of bagged cement to use of bulk cement. One company (ACC), that is among the foremost in India in the cement industry, had no such apprehension, and the government and IDBI/ICICI decided to cooperate with a minority share holding in ajoint venture company (BCC) along with ACC as a major partner. The sub-project was redesigned to a smaller scale. Later problems came up when delays occurred in the manufacture of the special wagons in a factory in India due to both force-majeure (major floods at factory area causing major damage), and conditions that apparently could have been controlled by the contractor. But as stated in para. 8., rail transportation began in October 1997. The receiving terminal at Mumbai had been completed months ago, and the bulk consuming market had been prepared to make use of bulk cement. The spread of RMC batching plants (12 plants already working) indicate that bulk cement will gain acceptance fast. The training component and the studies, it has been noted earlier were completed with success within the original closing date. 17. Factors Affecting Implementation: The following significant factors were noted during implementation: (a) ACC, one of the participating cement companies in modernization and restructuring, fully prepaid the loans from IDBI/ICICI in May-August 1995, although it could have done so in quarterly installments until 2001. It had derived the main advantages in the relent Bank part of the loans, first buying foreign exchange for the imports and second, in the exemptions from import duties that the government had extended to Bank financed projects - a substantial concession when import duties were high. (b) TISCO had technical problems with the rollers for slag grinding and had ultimately to scrap the rollers recommended to it by consultants and design and manufacture rollers on its own learning from the experience of the repeatedly failing rollers. To quote from their report - a key lesson learnt was "The main technology for the project should be a proven one of its capacity in terms of process and equipment." While this is true, there was not much experience around the world in the use of High Pressure Grinding Rolls (HPGR) of the bandage type design. Their use was only recent and the technology had not stabilized around the world. In particular, high duty performance of an unprecedented scale in large volume grinding of slag was called for at the TISCO Plant. How far the problems should have been anticipated by the technical consultants and the rollers design differently/manufactured better, and valuable time saved in continuously finding solutions to the difficulties and arose, and the modifications that had to be done are questions for careful study, but beyond the ICR's purview. The consultants, as far as can be discerned, had acted and advised in good faith. (c) A common handicap that all the companies faced was power-availability and reliability. In three sub-projects (Maihar Cement, Gujarat Ambuja and JK Corp.) standby power units were installed. Other infrastructure deficiencies, such as lack of good access roads and wagons for transport have been endemic. The cement companies had taken up these problems with the authorities and gradually finding solutions. These deficiencies did not seriously affect project implementation, but their removal in time would have enabled smoothness of operations.  -6 - E. Project Sustainability 18. The consumption growth of cement is directlv related to GDP growth in the country. FY94, FY95, and FY96 were years of buoyant economic growth and consumption of cement. There was a slight cooling of the momentum in FY97, apparently temporary as revival signs have been noticed. Consumption of cement per capita in the country, at less than 100 kg, is about 40% of the world average. It would be realistic to expect all cement companies, not only to produce to full capacity, but also to expand capacity. The beneficiary companies under Loan 3196-IN are leading companies with long experience and reputation who would ride temporary troughs in the cement market as there may be, and maintain a good long time record of performance and success. The bulk Cement Transportation Component would be sustained with the support given by the major shareholder (ACC), who has already set up a ready mix cement plant next to BCC's location at Kalamboli, as well as by the good response received by BCC in the sale of Bulk Cement in Greater Mumbai area (over 10,000 tonnese bulk cement sold in 4 months). The training component has been successfully completed, but the RTCs would continue to function, guided by a Coordination Council that the government has set up in association with the cement companies. In sum, the project in all its components is most likely to be sustained. F. Bank Performance 19. The most satisfying feature in this project was the coordination that the Bank achieved among the different players, the Bank itself, the government in the Ministries of Finance (Department of Economic Affairs) and Industry (Department of Industrial Policy and Coordination), IDBI/ICICI and the participating cement companies. The Bank had a salutary effect on the evolution of the liberalization of the cement industry, which became a harbinger for liberalization of other industries that followed. The Bank had identified some major sub-projects, but it delegated to IDBI/ICICI preparation and appraisal of the sub-projects (except the HRD and TA components that the government retained for direct implementation). The Bank provided necessary guidance to all the institutions. For supervisions, the Bank coopted the representatives of IDBI/ICICI in the missions. Supervisions, at regular intervals with appropriate mix of skills, were aimed at identifying the critical obstacles to the progress of the project, and finding solutions on the spot, involving the government, top management of IDBI/ICICI and the cement companies as necessary. At every stage, the Bank performed adequately and even organized, at the very top levels, discussions that may not have taken place without Bank's good offices. G. Borrower's Performance 20. The borrower at the different tiers, first the government who signed the Loan Agreement, second IDBI/ICICI who signed the Project Agreement and then, the Cement Companies who executed subsidiary agreements with IDBI/ICICI, all performed with a high degree of commitment to the objectives and purposes of the loan. The physical/economic targets and the prescribed environmental standards were attained. Two major difficulties faced in an otherwise spotless performance were (a) the technical problems that TISCO faced with the rollers in grinding and (b) the delay delivery of the special wagons for transportation of bulk cement. The former is attributed to consultant having recommended the bandage type design for rollers not suited to the duties in tenns of process and equipment, procured and ultimately replace. The latter was partly force majeure, but partly avoidable by the wagon manufacturer.  -7 - H. Assessment of Outcome 21. Ratings of 'High Satisfactory' are assigned to three of the large sub-projects and 'satisfactory' to the other two, as indicated in Appendix C. The Bulk Transportation component merits 'satisfactory' only, due to delays in wagon delivery. The government controlled components of HRD and TA were completed in a 'High Satisfactory' manner. The Project, as a whole, is rated "Satisfactory". It lent support to the sustenance of the liberalized industry. It further achieved regional production capacity redistribution, adoption of modern technology in cement making, upgrading of technical and managerial skills and introduction of a bulk cement transport system. I. Future Operations 22. The five cement companies that implemented the five large sub-projects under the industry Restructuring and Modernization' component have planned to achieve practically full capacity production in 1997-98, having attained over 80% of full capacity in 1996-97. The two smaller sub- projects have no measurable output to watch. Of the other components, it is the bulk cement transportation by rail between the cement factory at Wadi (Andhra Pradeh) and the receiving terminal at Mumbai, the expansion of the activity from two rake movement to three and the development of the market for bulk cement. The financial position of Bulk Cement Corporation (BCC) also requires constant monitoring in terms of the outline given in Appendix D. As pointed out therein, a major financial risk is that the debt service coverage times in the 4 or 5 years of operation is likely to be less than 1.0 improving later gradually to the targeted 1.5 times. ACC, as promoter of BCC has assured in a letter that it would provide BCC with additional funds, as necessary from time to time to ensure that BCC maintains a debt service coverage of 1.5 times throughout the currency of the loans. J. Key Lessons Learned 23. This project has demonstrated the following: (a) A free market is requisite for the rapid growth of an industry. In a developing country, however, the government may play a supportive role in indicating opportunities, in extending incentives, in providing the infrastructure facilities and in the readiness to meet with the industry representatives to resolve problems beyond their control (paras. 4 and 7). (b) To be competitive and efficient and to have staying power, the industry must possess and continuously upgrade its technical and management skills and knowledge (paras. 5c and 10) (c) Any technology that is introduced in a developing country should have been proved elsewhere for process, magnitude and equipment. If an adequate track record has not been established, great care should be exercised in selecting technology and equipment and sufficient protections built in for modifications and changes (para. 1 7b). (d) In planning projects, a holistic approach that should include what external agencies should provide is necessary. Power, transportation, access roads and such other support, in regard to their availability and dependability have to be assessed and build in abinitio (para. I 7c). (e) In a context of high interest rates on loans (far in excess of the inflation rates), greater attention should be paid to the capital structure so that the debt to equity ratios are carefully determined at start of a project. The project costs could become high due to interest during construction and delays in commissioning could have a deleterious effect on the finances of a project.  -8 - PART II: STATISTICAL TABLES Table 1: Summary of Assessments A. Achievement of objectives Substantial Partial Negligible Not Applicable Macro policies o Sector policies 0 Financial objectives s Institutional development Physical objectives z Poverty reduction 0 Gender issues 0 Other social objectives 0 Environmental objectives 0 Public sector management Private sector development 0 Others 0 B. Project Sustainability Ll Unlikel Uncertain C. Bank performance Highly Satisfactory Satisfactory Deficient Not Applicable Identification 0 Preparation assistance o Appraisal 0 Supervision 0 D. Borrower performance Hihly Satisfactory Satisfactory Deficient Not Applicable Preparation 0 Implementation 0 Operation 0 E. Assessment of outcome Highly Satisfactory Satisfactory Deficient Not Applicable  -9 - Table 2: Related Bank Loans/ Credits Loan/Credit Title 1 Purpose Year of Approval Status Preceding Operation Cement Industry Industry liberalization 1986 Completed in 1994 Project (Loan & modernization of 2660/2661 -IN) several existing plants Following Operation. None Table 3: Project Timetable Steps in Project Cycle Date Planned Date Actual/ Latest Estimate Identification January-February'88 April 1998 Preparation March-April 1989 March 2 - April 21, 1989 Initial Appraisal by Bank August-December'89 January 8-29 1990 Negotiations March-April 1990 March 28 - April 3, 1990 Board presentation May 1990 May 15, 1990 Signing May 1990 June 13 1990 Effectiveness August 1990 October 3 1990 Detailed Appraisal by Not planned Various dates for the sub- IDBI/ICICI projects during 1990-94 Project Completion December 31, 1995 September 30 1997 Loan Closing June 30 1996 June 30 1997  - 10- Table 4: Loan Disbursements: Cumulative Estimated & Actual (US$ millions) FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 Appraisal 25.0 130.0 220.0 260.0 290.0 300.0 300.0 300.0 Estimate Actual 16.02 32.39 95.37 163.92 235.41 257.61 273.9 Actual as % of 64% 25% 43% 63% 81% 85.9% 91.3% Estimate Date of final December 1, disbursement 1997 . 1 _ _ _ 1 Table 5: Key Indicators for Project Implementation Key Indicators Estimated at Appraisal Actual ACC-Gagal April 1993 September 1994 Gujarat Ambuja July 1994 September 1995 Maihar Cement-Century April 1995 March 1996 TISCO April & October 1993 October '93 & April 1994 JK CORP Ltd July 1994 March 1995 Bulk Cement Transportation June 1996 Due to begin in late 1997 HRD-Training December 1994 March 1996 Studies December 1990 September 1.996 Note: The dates in respect of the first five items in the table relate to commencement of commercial operations.  Table 6 (a): Key Indicators for Project Operation Capacity Planned, achieved/to be achieved (Million tons/year) F X ACC hI Gujarat Century7, L______ Gagal Ambuja Maihar i TISCO JK Corp Bulk Cement i Capacity 1.00 1.00 .00 1.73 0.88 0.50 Appraised ______ - _ _ - Capacity 1.10 2.00 1.00 1.79 0.88 0.50 Revised (by companies) Prodn. in '96-97 100% 94% 779% 72% 74% 0% % on revised capacity Target date for Maintain FY98 FY2000 FY98 FY98 FY2002, 100%ofrevised 100% beginning with capacity 0.21 in FY98 Table 6 (b): Key Indicators for Project Operation Efficiencies & Environment Gujarat Century AC Gagal : Ambuja Maihar TISCO JK Corp Fuel Rated Kcal/kg of 800 ,723 750 720 725 clinker 7 7 Achieved |762 1718 1750 |720 |725 PowerRated KWh/ton i 90 105 104 104&81 105 of cement two sites Achieved 93- 116- 109- 105 & 88- 103 ____ ______ improving improving improving improving Emission Mg/NM3 :100 100 100 100 100 Levels Rated Achieved i Yes Yes Yes 1 Yes Yes Green Belt 1Yes Yes Yes Yes Yes  - 12 - Table 7: Studies Included in the Project Study l Purpose Status Impact of Study 1. Use of lignite Using lignite in Completed Some cement plants are some cement plants interested and are ! _____________________ I -- in place of coal discussing possibilities 2. Coal washeries Reducing ash Completed Five locations for content of coal washeries identified 3. Mini cement plants Efficiency Completed Recommendations given improvements publicity for implementation 4. Export opportunities Indicating markets Completed Recommendations given and opportunities publicity for implementation 5. Bulk cement in Delhi & -Replicating the Completed Interested cement Calcutta Mumbai experience companies are to follow up 6. Marketing bulk cement Development of Completed Publicity thru' media, market for bulk seminars etc., being given cement Table 8(a): Project Costs (in US$ million) Appraisal by IDBI/ICICI Likely Actual Local Foreign Total Local Foreign Total ACC-Gagal 36.97 55.33 92.30 50.07 35.36 85.43 Gujarat Ambuja 86.75 65.00 151.75 111.07 67.97 179.04 Century Maihar 47.54 73.13 120.67 51.04 70.38 121.30 TISCO 77.00 70.00 147.00 108.23 56.23 164.46 J.K. Corp 77.00 43.00 120.00 68.61 44.10 112.71 HRDC/TA 2.00 2.00 1.60 1.60 Bulk Cement Corporation 3.47 12.50 15.97 6.62 11.52 18.14 Birla Jute-Optg.Equipment 11.00 11.00 8.70 8.70 J.K. Corp-Optg.Equipment 8.07 8.07 6.76 6.76 Total 328.73 340.03 668.76 395.64 302.62 698.14  - 13 - Table 8(b): Project Financing (US$ million) Ap 3raisal by IDBI/ICICI Actual Ln. 3196 Other Domestic Total Ln. 3196 Other | Domestic Total IBRD' _ IBRDI | ! ACC-Gagal 55.33 36.97 92.30 35.36 50.07 85.43 Gujarat Ambuja 68.00 86.75 151.75 67.97 111.07 179.04 Century Maihar 69.17 3.96 47.54 120.67 66.47 3.84 51.04 121.35 TISCO 50.00 20.00 77.00 147.00 39.0 20.00 108.23 167.23 J.K. Corp 43.00 77.00 120.00 47.0 68.61 115.61 HRDC/TA 2.00 2.00 1.60 1.60 Bulk Cement 12.50 3.47 15.97 9.40 6.62 16.02 Corporation Birla Jute 7.05 7.05 7.05 7.05 Total 307.05 23.96 328.73 656.74 273.85 23.84 395.64 693.33 * Appraisal estimates & loan allocations were determined by IDBI/ICICI for their sub-projects on various dates taking note of progress made by prior approved subprojects. I Two sub-projects, TISCO and Century Maihar, were partially financed from the funds available under other IBRD loans (Ln. 266 1-IN and Ln. 2928.-INT) which were also managed by the financial intermediaries IRD and ICICI. Century Maihar were provided US$3.84 million from Ln. 2661-IN; and prior to the approval of Ln. 3196-IN, TISCO were provided US2.0 million from the funds available under the Loan No.: Ln. 2928-IN. Table 9: ERR and FRR Appraisal Appraisal Actual Actual FRR ERR FRR ERR ACC-Gagal Min 15% Min 12% 21.2% 24.1% Gujarat Ambuja Min 15% Min 12% 20.2% 27.0% Century Maihar Min 15% Min 12% 15.7% 18.4% TISCO Min 15% Min 12% 11.8% 15.3% J.K. Corp Min 15% Min 12% 10.0% 14.2% Weighted Average Min 15% Min 12% 15.9% 20.6%  - 14 - Table 10: Status of Legal Covenants Agreement & Covenant Type Present I Original Revised i Description of Section i Status Fulfillment Fulfillment Covenant _ Date Date Loan, Sec. 4.01 Accounts/audits C Annual Maintain accounts and submit audited accounts of expenditures of I___________________ ______ __ _project Project, Sec. 3.01 ! Accounts/audits C Annual IDBI/ICICI to submit their audited accounts Project, Sec. 3.02 Financial C Continuous Debt: Equity Ratio of IDBI/ICICI less than 12: 1 & _ _ _ _ _ _ _ _ _ _ I__ _ _ _ _ _ _ _ L _ _ _ I__ _ _ _ _ _ _ _ _ _ _ _ D SC R over 1.2 Project, Sec. 2.01 Financial & CCContinuous Ciriteria for &PartB of Environmental selection of sub- L Schd.I _ , projects prescribed Table 11: Compliance with Operational Manual Statements There were no incidences of non-compliance.  - 15 - Table 12: Bank Resources: Staff Inputs Stage of Project Cycle Planned Weeks Actual Weeks Through Prely. 100 87 Appraisal Prely. Appraisal- 46 37 Board Board-Effectiveness 18 12 Supervision 139 138 Completion 9 10 TOTAL 312 284 Table 13: Bank Resources: Missions Mission Month/ Number Days in Specialized Number Year of Field Staff Skills Performance Rating Types of Problems Persons Implementa- Development tion Status Objectives I Mar-91 2 4 FNA,TRG S S Field days 2 Nov-91 2 9 EGR,TRG S S apportioned- 3 May-92 2 6 EGR,TRG S S loan 2660/ 4 Jan-93 2 12 EGR S S 2661 also 5 Jul-93 2 12 EGR S S supervised 6 Jan-94 2 14 EGR S S until Jul'94 7 Jul-94 3 16 EGR,FNA S S 8 Jan-96 2 20 EGR S S All thro' problems 9 Jul-95 1 13 EGR S S with start up and Aug-95 1 25 EGR S S implementation of Aug-95 I 11 EGR S S bulk cement 10 Jan-96 2 15 EGR S S transportation 11 Sep-96 3 17 EGR,FNA S S component 12 Jul-97 2 16 EGR,FNA S S  - 16- Appendix A IMPLEMENTATION COMPLETION REPORT INDIA India Cement Industry Restructuring Project ( Ln. 3196 - IN) Aide Memoire Supervision Mission - June - July 1997 1. A World Bank Mission comprising Messrs. Uruj Kirmani (Task Manager) and P. Venugopal (Financial Consultant) visited India from June 23, 1997 to July 9, 1997 to review the progress of the India Cement Industry Restructuring Project (Ln. 3196-IN) and preparation of the draft Implementation Completion Report (ICR) taking note of the completion and commissioning of sub-projects for (a) capacity additions in cement, with adoption of modem technology by five Participating Companies (PC): namely, Associated Cement Companies (ACC-Gagal Unit); Gujarat Ambuja Cement Ltd.; Century Textiles and Industries Ltd. (Maihar-2 Unit); Tata Iron and Steel Company (TISCO); JK Corp. Ltd.; (b) setting up facilities for bulk cement transport by Bulk Cement Corporation (India) Ltd. (BCC); (c) operational improvements by a seventh PC, Birla Corp Ltd., which replaced some old equipment with efficient new equipment; as well as (d) the completion of the Human Resources Development and Technical Assistance Components (HRDC & TA). 2. The representatives of IDBI and ICICI actively participated in the mission's program of meetings and field visits. The mission held discussions with the Officials of the Department of Economic Affairs (DEA), Ministry of Finance; Department of Industrial Policy and Promotion, Ministry of Industry (MOI) and Railway Design and Standards Organization, Ministry of Railways (RDSO); Managers and Executives of IDBI/ICICI; Representatives of the PC; and, the Management of CIMMCO Birla Ltd. (CIMMCO) (wagon manufacturers). It visited Bulk Cement pilot plant's facilities at Kalamboli and the CIMMCO's wagon manufacturing plant at Bharatpur. A list of persons met is given in Annex 1. 3. The Mission wishes to express its deep appreciation of the excellent cooperation it received from all those it met and of their valuable contribution to the discussions. 4. The findings of the Mission, the agreements reached and the recommendations made are summarized below. A formal communication will be sent from Bank Headquarters to confirm or amend the Mission's findings as necessary. Loan Data 5. Original Loan Amount: US $ 300 million Revised loan Amount: US $ 293.18 million (US $ 6.82 million were canceled at the request of the Government of India (GOI) with effect from June 1, 1994 ) Original Loan closing date: June 30, 1996 Revised closing date after last extension: June 30, 1997 IDBI / ICICI are managing 50% each of the Loan amount of US $ 291.18 million and the balance of US $ 2 million is managed by MOI for the HRDC and TA.  - 17- Appendix A Disbursement: 6. As of May 31, 1997, US$ 269 million had been disbursed, leaving an available balance of US$ 24 million. IDBI/ICICI expect to use another US$ 10 million by October, 1997 (The details of utilization are given in Annex 2). This would leave an uncommitted balance of about US$ 14 million which would be canceled on the closing date. The outstanding invoices against the contracts performned by the closing date would be eligible for payment from the proceeds of the Loan until October 31, 1997. Status of Sub-Projects 7. Some general comments are briefly made in the following paragraphs while a technical review (and operation plan) is presented in Annex 3. 7.1 ACC - Gagal : The plant, commissioned in September 1994, operated satisfactorily in 1996-97 [1.09 million tons per year (tpy)] at 109% of design capacity. Efficiencies in coal and power use as rated are being realized. Towards environmental protection, all emissions are below prescribed limits. Several thousand additional trees have been planted to improve the green belt. The mission commended ACC on these efforts. 7.2 Gujarat Ambuja - Himachal: The plant, commissioned in September 1995. It exceeded target production from test runs and achieved average 90% of design capacity (1.5 million tpy) production in 1996-97. It is expected to achieve 133% (2 million tons) in 1997-98 (Clinker is ground at plant site at Darlaghat as well as at Ropar grinding facility). The management reported that truck movement has been streamlined following action taken by the company to widen the road. ICICI representatives visited the plant site in May 1997 and were impressed by the improvements made in transportation of clinker to Ropar, since the mission's last visit in September 1996. Efficiency in use of coal has been realized as rated, but the rated power efficiency is expected to be attained in 1997-98. Environmental standards are fully complied with. 7.3 TISCO: TISCO has achieved an important project objective, namely utilizing blast furnace slag generated in the process of steel manufacture. In 1996-97, TISCO produced at 74% of the design capacity of 1.73 million tpy of cement. TISCO has reported that it has resolved all the major technical problem faced by it during the last several months, since commissioning of the Sonadih and Jojobera plants between October 1993 and March 1994. The rollers supplied with the original imported equipment were replaced with their own designed and fabricated rollers. The mission was pleased to note that TISCO has also resolved the rail transportation problems partly by availing of the 'Own Your Wagons' scheme. As a result, production in 1997-98 is expected at full design capacity. TISCO has fully complied with the environmental standards. 7.4 JK Corp. : (Laxmi Cement Unit II) - JK had commissioned this unit (capacity 0.9 million tpy) in September 1995. JK took up the addition of a complementary unit (Unit 111) with its own finances, so that the production from the two units could be raised to 2.0 million tpy by June 1997. Unit III is now expected to be completed by September 1997. In Unit II, JK has achieved full capacity production in test runs. However, average production in Unit II in 1996-97 was 70%. JK has fully complied with the environmental standards, and achieved target efficiency parameters in operations of various units commendably.  - 18 - Appendix A 7.5 Century - Maihar 2: The plant was commissioned in March 1996 with a design capacity of 1.0 million tpy, which was fully achieved in test runs. In 1996-97, 79% of design capacity production was achieved and Century plans to reach full capacity in 1998-99, depending on the market conditions. The mission commended Century on its environmental management on achieving the target environmental standards, even exceeding these in some instances, and on the development of a green belt of a high order around the plant. The operational ef-ficiencies in coal and power consumption are as rated or better. 7.6 Bulk Cement Transport Pilot Project The mission held discussions with the management of BCC and visited its site at Kalamboli. The mission was pleased to note the good progress made at Kalamboli. The plant is ready to receive the first rake of Bulk Cement wagons. Tasks which remain are painting, landscaping and cleaning up. All equipment have been installed and tested satisfactorily. The mission, along with the Chief Executive of BCC, also visited the plant of the wagon supplier (CIMMCO) at Bharatpur, on June 23, 1997,. The CIMMCO chief assured BCC of the supply of the wagons as scheduled. The mission was satisfied with the quality of the wagons built. 7.7 Birla Corp Ltd. The company had undertaken modernization/replacement of existing and old equipment and installation of equipment with a view to have better operational efficiency, lower cost, better environment, energy conservation and consistent production. Human Resources Development Component (HRDC) 8. The mission reviewed the progress of this component with Mr. Manohar, Program Coordinator, and the officials of MOI managing this component. The mission noted that all the 4 Regional Training Centers (RTCs) established are continuing to function satisfactorily. In all, 49 training packages were prepared by the consultants. These are being fully utilized. Until March 31 1997, the RTCs had conducted 247 courses and had trained 3016 personnel. The Project Coordinator informed the mission that a workshop "Visioning for RTCs in year 2003" was conducted in which senior executives of lead and core plants participated with interest. The training centers would be sustained with such revised arrangements as necessary. A Coordination Council comprising the MOI and Cement Plant representatives has been set up to ensure the continued functioning of the RTCs. Technical Assistance - Studies 9. All the 6 studies under the loan have been completed satisfactorily. MOI indicated that the recommendations made in the study were useful for making policy decisions on cement industry. Preparation of Implementation Completion Report (ICR) 10. All the sub-project entities have prepared their completion reports with guidance from the mission. IDBI/ICICI would forward their report, in consultation with GOI by July 31, 1997. The Bank would draft its ICR and forward it for GOI's review and acceptance, in due course.  - 19 - Appendix A Other Matters 11 Promotion of Bulk Cement and use of Ready Mix Concrete (RMC) 11.1 The President of the RMC association met the mission and informed it that the use of RMC was gaining ground, although slowly. 12 RMC batching units have started functioning in various parts of the country and major builders appreciate the advantages of RMC in contrast to use of bagged cement. Use of bulk cement has to go hand in hand with the setting up of RMC batching plants in order that efficiencies in the use of cement, the quality of the concrete and in construction time are all realized. MOI is aware of the economic benefits to the country in transporting cement in bulk and in the use of RMC in construction, building of concrete roads etc. The mission has no doubts that MOI/GOI will provide necessary encouragement to the users, offer incentives as feasible, and at least eliminate inhibiting factors such as redundant excise duties or other levies, as are said to prevail. Loan 2660-IN 11.2 The Implementation Completion Report (ICR) dated January 23, 1995 (Report No. 13920-IN) had brought out the continuing problems experienced by two (out of seven) sub-projects -IDCOL and Kalyanpur- although the loan had closed on June 30, 1994, after two extensions of one year each and the ICR was issued. The Mission, as indicated in the ICR and as advised by the Operations Evaluation Department of the Bank in May 1997, while forwarding the draft Performance Audit Report, took advantage of its current presence in India to review the progress of these two sub-projects. The financial position of both the companies is of serious concern. The mission held discussions, not only with the management of IDCOL and Kalyanpur (at Delhi and Mumbai respectively), but also with the top management of IDBI and ICICI. Annex 4 presents brief details on the current unsatisfactory status of the two companies. 12. This is the last supervision mission for this project.  - 20 - Appendix B India Cement Industry Restructuring Project (Loan 3196-IN) Summary Of Borrower's Final Evaluation Introduction 1. The Indian Cement Industry saw a rapid growth during 1980s, but still outdated technologies, viz. wet process technology were prevalent in many of the operating plants, having high energy consumption and poor pollution control norms, thereby leading to inefficient use of resources and deterioration of environment. Under the India Cement Industry Project Lines 2660 and 2661-IN. The World Bank, along with the institutions encouraged cement companies to adopt latest technology. 2. At the start of Seventh five year plan in 1985-86, the total installed capacity was 40.69 million tpa. However, there were regional imbalances in the country in terms of demand-supply leading to high transportation of cement across the country, as also straining the existing infrastructure of the country. To counter the same, under the Cement industry Restructuring Project LN 3196 - IN, capacity addition in deficit areas was encouraged and a pilot plant was proposed to demonstrate benefits of bulk cement transportation by tail in India, in line with the latest transportation method existing in the developed economies. 3. Involvement of the World Bank: Following the discussions with GOI, IDBI/ICICI and cement industry representatives, the World Bank decided to support build-up of capacities in deficit regions, particularly in northern and eastem regions and for setting up a pilot plant to introduce bulk cement transportation in India. 4. The project was approved by the Bank Board in May 1990 and the loan became effective in October 1990. The project underwent a change following dropping out of one of the projects viz.J.P. Assam and the scope of the Bulk Cement Pilot Project changed substantially. The initial loan closing date of the line was June 30, 1996, but three extensions later, mainly because of delay in implementation of bulk cement project, the loan closed on June 30, 1997. II. Project Design 5. The project consisted of three parts with Part A-Financing Industry. Modemization and restructuring . Part B - Human Resource Development and Part C - Technical Assistance. While Part A, was administered by IDBI/ICICI, Part B & C were administered by GOI, Under Part B assistance was provided for establishment of Regional Training Centers and Consultants' services for the purpose of assisting the cement industry to meet its demand for skilled manpower. Under Part C, viz. Technical Assistance, studies relating to cement industry have been carried out.  - 21 - Appendix B III. Project Objectives 6. The objectives of the project were to support the cement industry moderation and restructuring in India. Five sub-projects viz. ACC-Gagal, TISCO, Century - Maihar, J.K. Corp. And Gujarat Ambuja - Himachal, were supported for setting up green-field cement plants and expansion of existing plants catering to the cement deficit regions. The Bulk Cement Corporation (India) Ltd., was established for introducing bulk cement transportation in India, Birla Corp. (Erstwhile Birla ). Another unit was financed for modernization of its mining and material handling facilities. Also 4 Regional Training Centers (RTCs) were established under the line to meet the demand of skilled manpower in the industry. Technical studies on coal washeries for cement, export opportunity for cement plants in coastal area and utilization of lignite in cement plants and technical studies for mini cement plants and on development of market for bulk cement in India and bulk cement transport and distribution projects at Calcutta and Delhi were undertaken under this line. Part A: Industry Modernization and Restructuring 7. Five sub-projects viz. ACC-Gagal, TISCO, Century - Maihar, J.K. Corp and Gujarat Ambuja - Himachal, were supported for setting up green-field cement plants and expansion of existing plants catering to the cement deficit regions. The Bulk Cement Corporation (India) Ltd., was established for introducing bulk cement transportation in India. Birla Corp (erstwhile Birla Jute), another unit was financed for modernization of its mining and material handling facilities. Part B: Human Resources Development 8. Establishment and development of 4 Regional Training Centers (RTCs) to meet the demand of skilled manpower in the industry. Part C: Technical Assistance 9. Undertaking studies and technical assistance programs relating to the project including tecno-economic studies for coal washeries for cement, export opportunity for cement plants in coastal area and utilization of lignite in cement plants and technical studies for mini cement plants and on development of market for bulk cement in India and bulk cement transport and distribution projects at Calcutta and Delhi. IV. Project Implementation 10. All the projects were completed with 5% of the appraised cost in US Dollar terms and have performed satisfactorily. Only the Bulk Cement Pilot Project was delayed due to various reasons necessitating extension of the closing date of the line by one year. The company would start operations from 1997-98. 11. The project costs as given below indicate even a saving in US Dollar for some of the sub- projects primarily due to changes in the Rupee/Dollar partially { 1 US$ = Rupees 17 at Staff Appraisal Report (SAR) stage and I US$ = Rupees 35.8 in 1997}. However, in Rupee terms, the cost overrun occurred due to fluctuation in exchange rate, as well as increase in local costs.  - 22 - Appendix B 12. ACC-Gagal: The project was completed in September 1994 as against April 1993 (as per the original appraisal) after a delay of 18 months. The delay was mainly due to rebidding of ICB Packages. However, the project was completed within 30 months from date of placement of orders which is considered satisfactory. 13. The completed cost of the project was US$ 85.43 million (Rs. 2677 million) against the SAR estimate of US$ 92.3 million (Rs. 2400 million). The main components of the overrun in rupee loans were increase in cost of land and site and pre-operative expenses. However, due to fluctuation in parity between Rupee and Dollar, the project has actually had a saving in dollar terms, which the company surrendered. 14. TISCO The commercial production commenced in October 1993 at Sonadih and April 1994 at Jojobera as against April and October 1993 (as per original appraisal) i.e. after a delay of 5 months. However, the plant faced a major equipment, design problem in the slag-grinding circuit, which the company could overcome after replacing the rollers. 15. The actual project cost was US$ 156.46 million (Rs. 4230 million) as against the original estimate of US$ 147 million (Rs. 2650 million), mainly due to increase in the cost of land and building and plant and machinery. 16. Century - Maihar: The plant commenced commercial production in March 1996 as against October 1993 estimated earlier. The delay of about 30 months is mainly on account of delay in getting environmental clearance from State/Central Government and delay in delivery of- equipment. 17. The actual project cost was US$ 151.67 million (Rs. 4821 million) as against US$ 118.09 million (Rs. 3650 million). The increase in rupee term is mainly due to increase in pre-operative expenses and cost of land development. 18. JK Corp (formerly Straw Products): The plant commenced commercial production in March 1995 as against estimates of July 1994; the production in 1995-96 was not significant due to teething troubles and the same could be stabilized only from second half of 1996. 19. The actual project cost was US$ 110.71 million (Rs. 3394 million) as against US$ 120 million (Rs. 2250), mainly due to increase in cost of land and building and plant and machinery. 20. Gujarat Ambuja: The plant commenced commercial production from September 1995 as against July 1994, after a delay of 14 months, due to change in scope of the project. The project was however completed within 30 months from placement of orders, which is considered satisfactory. However, the targeted production of 1.5 mtpa was achieved from April 1996. 21. The actual project cost was US$ 148.60 million as against US$ 146.75 million, mainly due to change in scope of the project and increase in cost of plant and machinery. An additional amount of US$ 10 million (over and above original loan of US$ 60 million, which was fully utilized) was sanctioned to the company for procurement of DG sets; out of which the company was able utilize US$ 9.02 million.  -23 - Appendix B 22. Bulk Cement Corporation (India) Ltd (BCC): BCC was a pilot project to demonstrate the advantages of bulk cement transport and subsequently promote usage of bulk cement in India. For this purpose, ACC, the largest cement producer in India, agreed to participate in the project. BCC proposed to procure 2 rakes of special wagons for transport of bulk cement from ACC - Wadi too Kalamboli. The project was originally expected to be completed by June 1996 but the project has been delayed by more than a year due to the delay in the delivery of wagons. The wagons were delivered in June 1997. The company would start operations from 1997-98. 23. Birla Corp Ltd (Formerly know as Birla Jute and Industries Ltd): The assistance was provided to finance purchase of capital equipment like D.G sets, mining machinery, material handling equipment, etc. by Birla Corp. Ltd. The company has installed the equipment and would derive the benefits in the coming years. 24. Technical Assistance and Training: GOI effectively utilized US$ 0.3 million under this loan for undertaking tecno-economic studies for coal washeries for cement, export opportunity for cement plants in coastal area and utilization of lignite in cement plants. GOI also undertook technical studies for mini-cement plants and on development of market for bulk cement in India and on development of market for bulk cement in India and bulk cement transport and distribution projects at Calcutta and Delhi. 25. Human Resources Development: The Regional Training Centers (RTCs) that were setup under the Line 2660 in matured under the line. All 49 training packages procured are in use. The trainers were initially trained and more than 3500 personnel have been trained at the RTCs. The industry and GOI together are now working towards attaining Sustainability of these RTCs. V. Achievement of Objectives 26. The project was conceived to reduce the demand-supply imbalance in the northern and eastern regions of the country. In 1990-91 North, India has installed capacity of 11.19 million (MM) tons which by 1996-97 increased to 23.16 MM tons. Similarly East India, had an installed capacity of 4.99 MM in 1990-91 which by 1996-97 increased to 7.5 MM tons. Thus the project has succeeded in reducing the demand -supply imbalance in the country. All the completed projects have achieved the technical and financial parameters set out at the time of the appraisal. The project under implementation - Bulk Cement Corporation (India) Ltd., is also expected to achieve its coatimated objects. 27. ACC-Gagal: The company has been able to achieve capacity utilization of 112%. The company has also achieved fuel efficiency of kilo of 762 kcal/kg (Rated - 800 kcal/kg) and power to achieve guaranteed power consumption factor during the current year. 28. TISCO: The company has been able to achieve 72% capacity during 1996-97 and expects to reach rated capacity during 1997-98. Guaranteed fuel consumption was achieved and fuel consumption is 720 kcal/kg. The company has achieved rated power consumption of 105 kwh/ton at Sonadih while power consumption is 88 kwh/ton (Rated - 81 kwh/ton) at Jojobera.  - 24 - Appendix B 29. Century-Maihar: The company achieved a capacity utilization of 79% in 1996-97 and expects it to gradually rise to full capacity over the next three years. The current fuel consumption is 750 kcal/kg (Rated - 750 kcal/kg). Against the rated power consumption of 104 kwh/ton power assumption of 108 kwh/ton has been achieved. 30. J.K. Corp (Formerly Straw Products): The company has been able to achieve capacity utilization of 76% during 1996-97 and expects to reach rated capacity during 1997-98. The company has achieved rated fuel efficiency of 725 kcal/kg while power consumption is 103 kwh/ton (Rated 105 kwh/ton), 31. Gujarat Ambuja: The company has achieved 94% capacity utilization of its revised capacity of 2 million tons and expects to achieve 120% capacity utilization during 1997-98. The company has achieved 718 kcal/kg of fuel consumption against rated 723 kcal/kg and 116 kwh/ton of power consumption against rated 105 kwh/ton. 32. Bulk Cement Corporation of India (BCC): BCC received wagons in June 1997 and the operations would start in the year 1997-98. The capacity utilization would gradually buildup over the years. While initially the consumption of bulk cement would be low about 50%. It is expected to rise over 70% in 3 years after the benefits of use of bulk cement is demonstrated. 33. All cement projects have met environmental standards as per the equipment design, which are below the prescribed norms by State Governments. BCC has the necessary equipment for the environmental control to achieve the required emission levels. VI. Performance of Borrower 34. The World Bank loan was intended to rectify the regional imbalances of demand-supply in the country. The project helped in capacity build-up in the deficit regions, thereby reducing cross country movement of cement to a great extent. 35. IDBI and ICICI were associated with the project from the inception. Their role included identifying sub-borrowers, appraising projects, obtaining loan sanctions, helping the beneficiaries in observing ICB guidelines, disbursing funds and monitoring implementation of sub-projects. IDBI and ICICI were actively associated from the conception stage of Bulk Cement Pilot Project and have also provided requisite support in the form of equity. 36. IDBI/ICICI have been co-ordinating with follow-up supervision visits undertaken by the World Bank mission regularly and arrange meeting with the concerned officials in the Ministry of Finance/Ministry of Industry, GOI, Railway Authorities, equipment suppliers. consultants and sub- borrowers.  -25 - Appendix B VII. Bank Performance 37. After the success of the first line of credit for cement industry (2660-IN and 2661 -IN), a considerable interest was generated to avail further finance from World Bank to rectify the regional imbalances of demand-supply in he country. The Bank loan was negotiated at this time, when foreign exchange for import of machinery was scarce and in a scenario of rapid devaluation of rupee vis-A-vis foreign currencies. The Rupee-tied foreign currency loan for import of latest state-of-the-art equipment was appreciated by the industry. The project helped in capacity build-up in the deficit regions, thereby reducing cross country movement of cement to a great extent. VIII. Key Lessons Learnt 38. The loan was approved, at a stage when there was a scarcity of foreign exchange and the country was witnessing regular depreciation of rupee vis-a-vis foreign currencies. GOI agreeing to bear the foreign exchange risk came as a boon to the sub-borrowers as they availed Rupee-tied assistance for import of machinery, which translated to repayment obligation in rupee,. Due to the participation of international vendors in the bidding process the sub-borrowers received an exposure of the state-of-the-art technologies prevailing in the world, which helped them to procure equipment of latest technology, thereby obliterating the technology gap existing between the Indian cement industry and that of the developed economies. 39. During the first line of credit to cement industry, the industry and IDBI/ICICI had received sufficient exposure in the ICB Procedures, which made compliance of procedural norms easier in administering the second line of credit 3196-iN. 40. The import duties and excise duties exempted under the line, (if ICB procedures were followed). The benefit of the same was passed on to the sub-borrowers by the equipment suppliers, thereby reducing the project cost to that extent. 41. Because of participation of international vendors in the bidding process, the sub-borrowers received an exposure of the state-of-the-art technologies prevailing in the world, which helped them to procure equipment of latest technology. As a domino effect, subsequent projects utilized the best technology, thereby obliterating the technology gap existing between the Indian cement industry and that of the developed economies. 42. As regards disbursements by World Bank, it is felt that these could have been made on the basis of certification done by IDBI/ICICI instead of the procedure of scrutinizing the documents by three different agencies -viz. IDBI/ICICI; GOI and the World Bank. 43. It is felt that the requirement of environmental impact assessment could have been done away with for existing units envisaging installation of pollution control equipment and/or modernization of the plant not leading to an increase in the capacity. This would have facilitated better utilization of the line in the last two years without diluting the main objectives of the line. 44. While the line encouraged sub-borrowers to access latest technology from international equipment suppliers, care should be taken to accept only proven technology. A developing country can ill-afford to experiment or be experimented upon for new unproved technologies.  -26 - Appendix B 45. It would facilitate IDBI/ICICI to ensure better utilization of the line if extensions for the validity of the line are communicated well in advance of the last date of drawl. IX. Impact of the Project on the Industry 46. The project was conceived to reduce the demand/supply imbalance in the northern and eastern regions of the country. In 1990, North India had an installed capacity of 12.24 tones which by the year 1997 increased to 23.16 MM tons. Similarly East India had an installed capacity of 5.3 MM tons in 1990 which by the year 1997 increased to 8.28 MM tons. 47. The total installed capacity of the country during the period increased from 64.5 MM tons to 96.25 MM tons. During the year 1996-97, the supply has grown by over 12% while the demand has grown at 9%. This has resulted in a temporary surplus in certain sectors of the country. However with the expected demand growth with infrastructure likely to pick up in the next two- - years, the demand-supply is likely to get balanced. 48. There has been a substantial increase in the installed capacity, however the infrastructure support for transport of bagged cement has not been adequate. The high cost of transportation and the infrastructure bottlenecks would result in movement of cement in bulk form picking up. 49. The pilot bulk cement project will demonstrate the usage of bulk cement in the country by the construction industry and would also encourage industry to put up Ready Mix Concrete plants. The line would therefore not only have a positive long term impact on the cement industry but also on the construction industry in India.  -27 - Appendix C Implementation Completion Report Cement Industry Restructuring Project (Loan 3196-IN) Industry Modernization and Restructuring Component 1. Introduction: The 'Industry Modernization and Restructuring', which included installation of 5 new plants was one of four components of the Cement Industry Restructuring Project but it comprised about 90% of the loan outlay. Due to the reason that IDBI/ICICI appraised all the sub-projects under this component subsequent to loan approval by the Board (except for one sub-project), a brief description of the sub-projects, and of their implementation and operation is given in this annex. The Loan/Project agreements had laid down the criteria to be followed in selecting the sub-projects. Bank's prior approval was required for larger sub-projects appraised above $20 million. The SAR had identified five sub-projects the cost of which would exceed $20 million each. One of these projects in Assam area did not take off. Later JK Corp., Laxmi Plant was included as a substitute project. All subprojects i.e. ACC-Gagal, Century Maihar, TISCO, Gujarat Ambuja in HP/Punjab and JKCorp in Rajasthan, were appraised by IDBI/ICIC, and reviewed and cleared by the Bank. IDBI/ICICI also approved two smaller projects, Birla Corp Ltd. and JKCorp Ltd., for buying and installing certain equipment to improve operational efficiency and the environment. 2. The summary of these sub-projects is given as under: ACC-Gagal: IDBI approval: March 1990 Target for commercial operation: April 1993 Actual commencement of operation: September 1994 (explained by loan effective date having been delayed until October 1991) Capacity Planned: New plant for 1.0 million tons next to an existing unit of 1.0 million tons at Gagal, Himachal Pradesh Production achieved: 0.25 mm in FY95, 0.85 in FY96 and 1.1 in FY97 (110% of capacity) Energy efficiencies: Fuel 762 kcl /kg achieved (rated 800); 735 in April 97. Power 101 kWh/ton in FY 97 (rated 90); was 93 in April 97 and improvements expected. Project Cost: Appraised: $92 million Actual: $85 million Rate of return/Present estimates: FRR 20.7% (Table 2a-Appendix C) ERR: 24.7% (Table 2b-Appendix C) Environmental standards: Electrostatic precipitators (ESP), bag houses (filter and transfer points) installed and emission levels of less than 100 mg/nm3achieved- below regulations. Ambient air quality about 180 microgram/cu. Meter, below standard of 200. Green belt established. Overall rating "Highly satisfactory"  - 28 - Appendix C Gujarat Ambuja Cement Ltd. (GACL) IDBI approval: March 1991 Target for commercial operationJuly 1994 Actual commencement of operation: September 1995 (explained by redesign of kiln for larger capacity and split locations for grinding at original site in Himachal Pradesh and a new site in Punjab where fly ash could be used for PPC making) Capacity Planned: At appraisal: Greenfield plants in Himachal Pradesh for 1. 1 million tons of cement with kiln for 3300 tpd. Change subsequently by GACL: Kiln capacity raised to 4600tpd and cement grinding provided additionally in Punjab for total cement prodn. of 2.0 million tons. Production achieved: 1 million tons in 1996 (ending June 30); estimated actuals 2.0 million tons in 1997 (100%) Energy efficiencies: Fuel 718 kcl /kg achieved (rated 723); Power 116 kWh/ton in FY 97 (rated 105); being achieved in FY98 Project Cost Appraised: $152 million Actual: $179 million; overrun of 18% due to capacity increases. Rate of return/Present estimates: FRR: 20.2% (Table 3a-Appeindix C) ERR: 28.0%; (Table 3b-Appendix C) Environmental standards: Electrostatic precipitators (ESP), bag houses (filter and transfer points) installed and emission levels of less than 50 mg/nm3 achieved- well below regulations. Green belt established. Overall rating "Highly satisfactory"  -29 - Appendix C Maihar Cement- Century ICICI approval: Initial-November 1990 Revised- April 1993 (after mandatory environmental clearances) Target for commercial operation: April 1995 Actual commencement of operation: March 1996 (normal time, about 3 years, taken between revised approval and completion- target time was ambitious) Capacity Planned: New modem plant of 1.0 million ton capacity, next to an existing plant of 1.0 million capacity. Production achieved: 0.79 million tons in 1997 (ending March 31); 0.27 million tons in I qr. of FY98 (108%) Energy efficiencies: Fuel 750 kcl /kg achieved (rated 750); Power 109 kWh/ton in FY 97 (rated 104) & 95kWh in I qr. of FY98. Project Cost: Appraised: $120.7 million (CF: ACC; higher costs due to more numbers of quarry equipment/ loco-motives; use of belt conveyors in place of truck transport; vertical roller mill in place of tube mill etc.) Actual: $121.3 million Rate of return/Present estimates: FRR: 15.7% (Table 3a-Appendix C) ERR: 18.8% (Table 3b-Appendix C) Environmental standards: Electrostatic precipitators (ESP), bag houses (filter and transfer points) installed and emission levels of less than 100 mg/nm3 achieved- below regulations. Green belt established -over 600,000 trees. Overall rating "Highly satisfactory"  - 30 - Appendix C TISCO IDBI approval November 1989 (in anticipation of Loan 3196-IN being approved - May 1990) Target for commercial operation: Split Locations- TISCO's first cement plant (& only) Sonadih, Madhya Pradesh- April 1993 Jojabera- Bihar, October 1993 Actual commencement of operation: Sonadih, October 1993 & Jojabera. March 1994 (delay due to problems with rollers in slag grinding, first of its kind for the capacity designed; logistical difficulties in rail transport of clinkers & cement ex-plants; land acquisition constraints-resolved at last) Capacity Planned: 0.3 million of OPC at Sonadih & 1.43 of PBFSC (slag cement) at Jojobera. Production achieved: 32% in FY95, 62% in FY96, 74% in FY97 and under achievement in FY98, 100%. Energy efficiencies: Fuel, 720 kcl/kg in FY97 (rated 720); Power, 105 kWh/ton at Sonadih (rated 104) & 88kWh/ton at Jojabera (rated 81). Project Cost Appraised: $147 million (low cost relative to capacity due to a high proportion of slag cement). (See table at end of annex) Actual: $164 million (excess of 12% due to time slippage & roller redesign & replacements by TISCO own) Rate of return/Present estimates: FRR 11.8% (Table 4a-Appendix C) ERR 15.5% (Table 4b-Appendix C) Environmental standards: Electrostatic precipitators (ESP), bag houses (filter and transfer points) installed and emission levels of less than 100 mg/nm3 achieved- below regulations. Ambient air 300 micro grams/m3, against maximum of 500 under regulations. Green belt established. Overall rating "Satisfactory"  - 31 - Appendix C JK Corp Ltd.. IDBI approval March 1991 Target for commercial operation July 1994 Actual commencement of operation: March '95, but stabilized production from July '96 only. (Delay due to several teething problems, as well as, dovetailing of an expansion project for higher capacity even as the Bank project was in progress) Capacity Planned: The Bank project was for a new modern plant of 0.9 million tons capacity in Rajasthan, adjacent to an old plant of a capacity of 0.6 million tons. JK Corp decided to expand the new capacity to 2.0 million tons through provision of supplementary and balancing equipment. Production achieved: Insignificant production in FY96 (ending March 31); 74% of full output under the Bank project in FY97; full output being achieved in FY98. Energy efficiencies: Fuel 725 kcl /kg achieved (rated 725); Power 103 kWhlton (rated 105). Project Cost /Appraised: $120 million Actual: $113 million (lower than appraised, nevertheless high installed cost per ton of cement capacity) Rate of return/Present estimates: FRR: 10.0% (Table Sa-Appendix C) ERR: 14.5% (Table Sb-Appendix C) Environmental standards: Electrostatic precipitators (ESP), bag houses (filter and transfer points) installed and emission levels of about 50 mg/nm3 achieved- well below regulations. Green belt established -over 700,000 trees. Overall rating "Satisfactory"  - 32 - Appendix C Small subprojects Birla Corp Ltd. ICICI approvals given in November '95 and March '96 for procurement of 'certain mining equipment, diesel locomotive and electronic packing machines' and for 'certain process and material handling equipment' for the Chittorgarh cement plant in Rajasthan (converted to dry process under Loan 2660-IN. The objective was 'to improve the productivity'. The total amount of the loans was the rupee equivalent of $1 I million from the proceeds of Loan 3196-IN. Being less than $20 million, no measures for performance were stipulated. The company has utilized the equivalent of $8.70 million; the shortfall was due to exchange fluctuations and some items not procured with the tight time that was available before loan closing, even with extension to June 30 1997. A list of the individual machinery and equipment procured and its purpose compiled by the company shows that the purchases were well made. JK Corp Ltd. As in the case of Birla Corp Ltd., IDBI gave approvals in November '95 and March '96 for JK Corp Ltd., to avail itself of rupees equivalent to $11 million initially, later reduced to $8.07 million. This would enable procurement of 'certain additional mining machinery' and equipment for 'raw mill conversion', and result in operational improvements at the JK cement complex in Rajasthan. The company could utilize the equivalent of $6.76 million only before loan closing, due to constraints of time.  - 33 - Appendix C B. Rate of Return -Economic and Financial The following pages contain tables on ERR and FRR of thle five major cement subprojects- individually, beginning with the consolidated rate calculations. The notes below explain the assumptions. (a) Cement Prices: Cement prices, after deregulation, are market determined. Reckoning showed that imported cement was likely to cost more than the Indian cement, in the different markets. Thus the selling prices could be taken as the economic prices. (b) Operating costs: The main tradable commodity used in operation is coal; coal prices, adjusted for calorific value, ash content etc., compare favorably with import parity prices. For ERR cost calculations, a significant item that was excluded was the excise duty of Rs.350/ton. (c) Conversion factors: In the conditions of a floating exchange rate, full duty exemptions on Bank projects, need for trained employees in modem cement factories etc., conversion factors are not relevant. In not applying conversion factors, the error, if any, would only give a slightly lower economic rate of return. Table b(1): Combined ERR & FRR and unit value & cost 1991 1992 1993 1994 1995 1996 1997 1998 1999 - 2000 2001/10 Net benefit -All subprojs. (6) (2868) (4911) (7856) (6533) 839 5921 7691 7890 7954 7954 Combined ERR 20.6% Net financial cash flow (414) (2175) (3932) (6892) (6551) (1515) 3764 5340 5624 5671 5671 Combined FRR 15.9% Cement Qty./ton - 0 0 0 0.8 3.0 5.7 6.6 6.7 6.8 6.8 Gross sales 0 0 0 0 7178 13077 15652 15984 16114 16114 Econ Value/Rs/ton (1197) 2407 2303 2365 2379 2381 2381 Econ Value$/ton 6780 64.87 66.62 67.02 67.02 67.07 Econ Cost/$ton 36.50 29.14 28.69 28.48 28.4  - 34 - Appendix C Table b(2a): Financial Rate of Return-ACC Gagal 1992 1993 1994 1995 1996 1997 Invest. Rs Million incl. 365.3 1,079.4 1,207.6 295.4 - - IDC Sales Income 512.7 2,068.8 2,478.0 Operating Expenses 368.6 1,288.7 1565.9 Admn. & Other Charges 100.3 186.38 284.96 excl. int Add Non-Cash Charges 83.6 142.7 135.7 Net Cash Flow (365.3) (1,079.4) (1,207.6) (168.0) (736.4) (762.8) FRR= 21.2% _ __ _ _ _ _ __ Table b(2b): Economic Rate of Return - ACC Gagal WPI (Cap. Goods) - Factor 204.1 226.8 233.3 268.2 293.2 313.6 Invest. Excl. IDC 344.7 969.1 1008.2 295.4 - - Sales Income 512.7 2,068.8 2,478.0 Opex less excise 208.0 990.7 1,182.5 Admn. Charges 100.3 186.38 284.96 Add Non-Cash Charges 83.6 142.7 135.7 Net Cash Flow (344.7) (969.1) (1008.2) (7.5) 1034.4 1146.2 Adjusted Cash Flow 1997 (529.6) (1340.0) (1355.2) (8.7) 1106.4 1146.2 ERR= 24.1% Cement Qty. M ton 0.25 0.85 1.10 Econ. Value/ton (C & F) 2053 2429 2262 Econ. Cost/ton (C& F) 1235 1382 1339  - 35 - Appendix C Table b (3a): Financial Rate of Return-Gujarat Ambuja 1992 1993 1994 1995 1996 1997 98/2010 Invest. Rs M incl. IDC 365.3 1079.4 1207.6 295.4 - - - Sales Income - - - 295.4 Operating Expenses - - - - 51 2.7 Admn. & Other Charges excl. int. - - - 368.6 Add Non-Cash Charges - - - - 100.3 Net Cash Flow 83.6 (365.3) (1079.4 (1207.6) (168.0) FRR= 21.2% Table b (3b): Economic Rate of Return-Gujarat Ambuja 1992 1993 1994 1995 1996 1997 98/2010 WPI (Cap. Goods) 204 227 233 268 293 308 308 Invest. excl. IDC 70 216 1787 2651 957 0 0 Sales Income 0 2483 4290 4600 Operating Expenses 1818 2243 2287 Admn. Charges Add Non-Cash Charges 207 278 278 Net Cash Flow (70) (216) (1787) (2651) (87) 2324 2590 Adjusted Cash Flow 19 (105) (293) (2358) (3043) (91) 2324 2590 ERR = 28.0% Cement Qty. M ton 0 0 1.01 1.87 2.00 Econ.Value/ton (C & F) 0 0 2450 2300 2300 Econ. Cost/ton Rs. (low being 0 0 1795 1203 1144 mostly PPC from 1998)  -36 - Appendix C Table b (4a): Financial Rate of Return-Century Maihar Rs. Million 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000-10 Investments Rupees 4 162 494 2067 1289 787 19 Sales Income Gross 106 2063 2220 2481 2611 Operating Expenses 90 1393 1424 1591 1675 Admn. & Other Charges 23 26 26 26 26 Add Non-Cash Charges 30 255 255 255 255 Net Cash Flow (4) (162) (494) (2067) (1289) (764) 881 10251 1119 1166 FRR= 15.7% Table b(4b): Economic Rate of Return-Century Maihar WPI (Cap. Goods) 178 204 227 233 268 293 308 308 308 308 Investments Exc. 3 130 395 1654 1031 630 0 0 0 0 IDC Sales Income Gross 0 106 2063 2220 2481 2611 Op. exp.less excise 76 1117 1126 1259 1325 Admn. & other Charges 23 26 26 26 26 Add Non-Cash Charges 30 255 255 255 255 NetCashFlow (3) (130) (395) (1654) (1289) (592) 1176 1323 1451 1516 NetCash 1997Rs. (6) (195) (536) (2182) (1480) (622) 1176 1323 1451 1516 ERR= 18.8% Cement Qty. M ton 0 0 0 0.8 0.9 1.0 1.0 Econ. Value/ton (C&F) 0 0 2585 2611 2611 2611 2611 Econ. Cost/ton (C & F) 0 0 2406 1446 1355 1352 1351  - 37 - Appendix C Table b(5a): Financial Rate of Return - TISCO (RupeesMillion) 1991 1992 1993 1994 1995 .1996 1997 1998 |Invest. Rs/ (incl.IDC) 410.0 1,560 1,530 390 80 140 195 120 Sales Income 152 1,118 2,520 2,877 4,275 Operating Expenses 247 1,318 2,353 2,775 3,554 Admn. Charges Etc.. 'Add Non-Cash 128 181 220 239 240 Charges Net Cash Flow (410.0) (1,560) (1,530) (357) (99) 247 146 841 FRR=11.8% Table b(5b): Economic Rate of Return-TISCO WPI (Cap. Goods) 177.7 204.1 226.8 233.3 268.2 293.2 307.9 307.9 Investments (exc.IDC) 390 1,485 1,455 370 75 140 45 Sales Income 0 152 1,118 2,520 2,877 4,275 Optg. Exp. exc. duties 215 1,121 1,976 2,328 2,928 }Admn. & other ICharges !Add Non-Cash Charges 128 181 220 239 240 Net Cash Flow (390.0) (1,485) (1,455) (305) 103 624 744 1,587 Adjusted Cash Flow in 1997$ (675.7) (2,240) (1,975) (402) 119 655 744 1,587 ERR= 15.5% Cement Qty. M ton 0.092 0.56 1.08 1.28 1.79 Econ. Value/ton (C& 0 1982 2342 2251 2388 'F) Econ. Cost/ton (C & F)l 0 1987 1837 1821 1636  - 38 - Appendix C Table b(6a): Financial Rate of Return -J.K. Corp. 1992 1993 1994 1995 1996 1997 1998 1999 Invest. Rs M incl. IDC 13 584 1286 1800 533 0 Sales Income 0 1369 1993 2063 Operating Expenses 0 1234 1517 1517 Admn. Charges Add Non-cash Charges 0 169 175 175 NetCashFlow (13) (584) (1286) (1800) (533) 304 651 721 FRR= 10.0% Table b (6b): Economic Rate of Return-J.K. Corp 1992 1993 1994 1995 1996 1997 1998 1999 WPI (Cap. Goods)/Factor 204.1 226.8 233.3 268.2 293.2 307.9 307.9 307.9 Invest. Excl. IDC 13 583 1200 1559 180 0 0 0 Sales Income gross 0 0 1369 1993 2063 Opex less excise 0 1006 1210 1210 Admn. Charges Add Non-Cash Charges 0 169 175 175 NetCashFlow (13) (583) (1200) (1559) (180) 532 958 1028 AdjustedCashFlow 1996 (20) (791) (1584) (1790) (189) 532 958 1028 ERR= 14.5% Cement Qty. M ton 0 0 0.65 0.88 0.88 Econ. Value/ton Rs.-(C & F) 0 0 2106 2270 2350 Econ. Cost/ton Rs.-(C & F) 0 0 1548 1378 1378  - 39 - Appendix D Cement Industry Restructuring Project Pilot Bulk Cement Transportation Component Error! Bookmark not defined. 1. Introduction: This component, although a minor one, which at the time of appraisal was estimated to cost $50 million (7% of total project cost) with Bank financing 50% of the amount, was innovative. It would introduce modem bulk cement transport technology in India achieving: Reduction in rail freight costs in the use of special wagons against conventional wagons that carry cement in bags Lower pollution levels when less of bagged cement is transported Higher efficiency in cement handling and accordingly less of losses Use of ready mixed concrete (RMC) in building housing, commercial and office complexes and concrete roadways etc., with minimum wastage and assured quality. 2. Implementation: Danish consultants under a Danida grant submitted a Detailed Project Report in August 1993. Six cement companies evinced interest initially in participating in a joint stock company to be set up with GOI as a minority partner, for bulk transportation of cement to Kalamboli, Mumbai where BCC would establish a receiving terminal with silos, bagging plant and tanker trucks. The participating cement companies would erect bulk loading facilities at their factories and realize cost savings through higher efficiencies in loading. BCC would, for a fee, receive and distribute the cement in bulk as well as in bags to the consumers in Mumbai. Five of the six companies eventually withdrew from participation. In the process, the project, in a scaled down version at one-half of the initial scope with Bank contribution also at one-half, could commence only in October 1994. While this delay could be attributed to the shying away by the cement companies, except for one (ACC), from a new venture, the wagon manufacturing company in India (selected under ICB procedures) principally contributed to further delays, some beyond control (floods) and others which appeared to be avoidable. As a result, the loan closing date had to be extended by one year from June 30, 1996 to June 30, 1997. The special wagons were ready to be deployed in service. The Kalamboli terminal had meanwhile begun operations by receiving conventional wagons transporting cement in bags from the ACC factory at Wadi. 3. Achievement of Objectives: The objectives outlined in para 1 are obviously achievable once bulk movement begins. Independently, RMC central batching plants are becoming popular and 12 such plants are in operation in the country including one of ACC's at Kalamboli at a site adjacent to BCC's. Cement silos for these plants are filled by cement in bags for the present. 4. Economic Justification for BCC Operation: The work plan of BCC and the costs and benefits are outlined at pages 2 & 3. The economic rate of return is estimated at 10.6%, which is satisfactory. BCC must, however, promote the demand for bulk cement assiduously in order that the target of 0.5 million is achieved. BCC will be well advised to expand into other activities also at Kalamboli, e.g., manufacture of products like prestressed components, precast building elements, lightweight blocks and panels. A good part of the leased land at Kalamboli stands unutilized. ACC has some plans in this regard and made a mention of its ACC-SCANFORM scheme or A-Flat-A-Day, using the Kalamboli site as the supply base.  -40 - Appendix D 5. BCC's Financial Position: Due to delays in completion of the project and interest rates at 15- 16% payable to IDBI/ICICI, the project costs (excluding leased land) now placed at Rs. 644 million would exceed the 1994 estimates of Rs. 567 million by 11%. ACC is the majority shareholder of BCC (67%) and the sole user of BCC's services. The revenues of BCC are from two sources mainly, service charges that ACC pays and the rail freight rebates that ACC would get from the Railways for bulk cement movement, but would pass on to BCC (the special wagons are paid for by BCC). Presumably, BCC would in negotiations of service charges for dispatching and distributing cement in Mumbai endeavor to capture all of the cost savings accruing to ACC so as to have a satisfactory financial rate of return. 6. Project Sustainability: The major risk is financial. BCC's debt: equity ratio is 70:30. Interest payments are substantial and loan repayments, after the moratorium, are due to begin in 2000. Debt service coverage times in the first 4 or 5 years of operation are likely to be less than 1.0, improving later as the targeted 0.5 million tons of cement are handled. ACC, as promoter of BCC, has assured (March 1997) its creditors (ICICI/IDBI) that it would provide BCC with additional funds, as necessary from time to time to ensure that BCC maintains a debt service cover of 1.5 times throughout the currency of the loans. BCC should follow up and have a direct agreement with ACC incorporating this assurance.  - 41 - Appendix D Bulk Cement Trnsport- Costs, Benefits & Economic Rate of Return Note: Benefits accrue to BCC through rail freight rebate in bulk cement transportation from cement factories to Mumbai and in cement handling by BCC after receipt of bulk cement at Mumbai. I1 Quantity of cement to be handled by BCC 1998 1999 2000 2001 2002 2003/12 Bagged % 44% 17% 28% 0% 15% 0% Bulk % 56% 83% 72% 100 85% 100% Total % 100 100 100 100 100 100% Total 1000 tons ___ 21.4 28.5 35.6 35.6 47.5 47.5 2 Calculation for Prices (Non-Trade), and resultant NCR for Cement dispatched after receipt in Mumbai Without Project With Project IDispatch from Dispatch from Warehouse in BCC -in bulk bags Rupees per Rupees per Rupees per Bag Ton Bag Ton Bag Ton Free Market Prices (Non-Trade) 140.0 2800 140.0 2800 Distribution Costs 1.5 30 1.5 30 Channel Cost/Canvassing Agent 2.0 40 2.0 40 Comm Bulk Rebate, market determined 0.0 0 4.0 80 FOR Price 136.5 2730 132.5 2650 Secondary Freight E 6.0 120 5.0 100 (from dispatch point) Ex Dispatch Prices 130.5 2610 127.5 2550 Clearing and Local Transport 6.0 120 Primary Freight 20.5 410 21.0 420 Packing 6.8 136 Service Cost/Equipment 2.5 50 Net Cement Realization 97.2 1944 104 2080 Net benefit 6.8 136  -42 - Appendix D 3 Calculation for Prices (Trade), and resultant NCR -- BAG SALES for cement received inMumbai Without Project With Project Dispatch from Dispatch from Warehouse in BCC -also in bags bags 'Rs./Bag Rs./Ton Rs./Bag Rs./Ton Free Market Prices (Trade) 148.0 2960 148.0 2960 Distribution Cost 1.5 30 1.5 30 Channel Cost / Dealers Margins j 5.0 100 5.0 100 FOR Price to dealer(main) l 141.5 2830 141.5 2830 Secondary Freight 6.0 120 5.0 100 Ex Warehouse Prices 135.5 2710 136.5 2730 (exc. Sales Tax) Clearing and Local Transport 6.5 130 0.0 0 Primary Freight 20.5 410 20.7 415 Packing 6.8 136 6.8 136 Net Cement Realization I101.7 2034 109.0 2179 Net benefit 7.3 145 1998 1999 2000 2001 2002 2003/12 Total of net benefits in Project Operations - in Rs. (thousands) to ACC 3000 3920 4940 4850 6530 6460 4 Cost & Benefit Statement (Rs.1000 1997 1998 1999 2000 2001 2002 2003/12! Capital Costs Investments excl IDC (1997 Rupees) 7238 0 0 0 0 0 0 Inflow from sale of Assets/Grants 1181 150 0 0 0 0 Inflows / Revenues / Savings Revenues from ACC-all net benefits 3000 3920 4940 4850 6530 6460 Revenues from Rail Freight Rebates 2230 2980 3720 3720 4960 4960 Total Revenues 5230 6900 8660 8570 11500 11430 Outflows / Costs Variable Costs of Operations 250 330 450 490 720 770 Fixed Costs of Operations 880 880 880 880 880 880 Total Cost of Operations 1130 1210 1330 1380 1600 1660 Net Cash Flow (6057) 4100 7190 7330 7190 9900 9770 ERR= 10.6%